WEBVTT - Kopi Time E135 - Techno-nationalism with Alexander Capri 0:00:05.960 --> 0:00:08.819 Welcome to Kobe Time, a podcast series on Markets and 0:00:08.829 --> 0:00:11.939 Economies from D BS Group Research. I'm Tam Rbe, chief economist. 0:00:11.949 --> 0:00:16.940 Welcoming you to our 135th episode today. We will welcome 0:00:16.950 --> 0:00:20.540 back Alexander Capri to the podcast. Alex is a writer, 0:00:20.549 --> 0:00:24.399 academic and former partner in the Asia Pacific Practice of KPMG. 0:00:24.829 --> 0:00:27.750 He has done a lot of work on global value chains, 0:00:27.760 --> 0:00:31.940 trade and geopolitics, Global tech, the digital economy and the 0:00:31.950 --> 0:00:33.340 industries of the future. 0:00:33.590 --> 0:00:37.330 Alex has recently published a book Techno Nationalism, how it's 0:00:37.340 --> 0:00:41.729 reshaping trade, geopolitics and society. Alexander Capri, a warm welcome 0:00:41.740 --> 0:00:45.360 back to Copy time. Thank you. It's great to have you, Alex. 0:00:45.790 --> 0:00:49.529 We did this once before back in April 2020 just 0:00:49.540 --> 0:00:52.200 as we were being engulfed by the global pandemic. Alex. 0:00:52.209 --> 0:00:54.569 When I look at the transcript of that conversation, I 0:00:54.580 --> 0:00:57.090 think we kind of had it right. We talked over 0:00:57.099 --> 0:00:59.200 the push and pull factors driving the realignment of the 0:00:59.209 --> 0:01:00.270 global supply chain. 0:01:00.680 --> 0:01:03.020 Uh We asserted barely a couple of months into the 0:01:03.029 --> 0:01:07.540 pandemic that the crisis would provide additional motivation to lean 0:01:07.550 --> 0:01:13.150 toward resiliency over efficiency. Well, those issues remain alive today, Alex, 0:01:13.160 --> 0:01:15.339 and you've written a lot rather large book on it. 0:01:15.480 --> 0:01:18.940 So let's start, how do you define techno nationalism? 0:01:19.360 --> 0:01:20.540 Good question. 0:01:21.069 --> 0:01:23.839 Uh II, I would say that we would throw in 0:01:23.849 --> 0:01:26.690 a few other words. Uh So let, let's start with 0:01:26.699 --> 0:01:30.988 geo economics, right? If we're thinking about supply chains, let's 0:01:31.000 --> 0:01:34.809 replace uh just in time with, just in case. Uh 0:01:34.949 --> 0:01:38.379 you know, if, if we're thinking about a purely cost 0:01:38.440 --> 0:01:44.569 driven model that seeks efficiencies and hyper rationalized supply chains, now, 0:01:44.910 --> 0:01:49.870 geo poli geopolitics and other issues stemming from great power 0:01:49.879 --> 0:01:50.730 competition 0:01:51.120 --> 0:01:55.120 are now factoring into how a supply chain is structured. 0:01:55.470 --> 0:01:58.750 Um You know, where a manufacturing process is going to 0:01:58.760 --> 0:02:03.059 take place, how a strategic partner is chosen. Um So, 0:02:03.069 --> 0:02:07.500 so I I would break down techno nationalism into six 0:02:07.550 --> 0:02:09.258 very distinct elements. 0:02:10.000 --> 0:02:15.119 Um The first is uh supply chains. So supply chain weaponization, 0:02:15.440 --> 0:02:20.699 governments looking to control or stem the flow of technology 0:02:20.839 --> 0:02:26.149 to perceived adversaries and that happens through things like export controls, 0:02:26.410 --> 0:02:30.070 ah the imposition of sanctions. Um Then I would, I 0:02:30.080 --> 0:02:34.440 would break it down into uh decoupling and Deris. And 0:02:34.449 --> 0:02:36.850 if decoupling and deris is happening, then we're looking at 0:02:36.860 --> 0:02:39.809 reshoring near shoring friend, shoring 0:02:40.288 --> 0:02:44.029 uh from, from a sort of a G to G basis. 0:02:44.038 --> 0:02:47.460 Um And even a G to B basis. We're looking 0:02:47.470 --> 0:02:52.429 at government driven innovation, industrial policy if you will. Uh 0:02:52.440 --> 0:02:58.649 we're also looking at um an increase in basically, frankly, 0:02:58.779 --> 0:03:02.288 you know, hybrid warfare, right? We're looking at espionage. We're 0:03:02.300 --> 0:03:07.109 looking at uh elevation of cyber intrusions, that sort of thing. 0:03:07.410 --> 0:03:10.410 And then the final element would be uh basically what 0:03:10.419 --> 0:03:14.600 we call tech uh diplomacy, right? So governments working with 0:03:14.610 --> 0:03:17.779 other governments and working with businesses to forge these new 0:03:17.788 --> 0:03:21.829 strategic alliances around strategic technologies. 0:03:22.880 --> 0:03:26.440 Why is it just not nationalism? Why is it techno nationalism? 0:03:27.000 --> 0:03:31.130 Because uh technology is a power multiplier. And so if 0:03:31.139 --> 0:03:34.199 we put this in the context of a a nation, 0:03:34.210 --> 0:03:38.600 a nation state uh technology, I, if we're putting this 0:03:38.610 --> 0:03:42.520 in the terms of techno nationalism ah is about the 0:03:42.529 --> 0:03:48.000 linkage between the technological prowess of a particular country or 0:03:48.009 --> 0:03:49.979 organizations within that country 0:03:50.470 --> 0:03:55.110 and their ability to project national security and, and, and 0:03:55.119 --> 0:04:02.130 defense related uh power, uh the linkage to economic strength, prosperity. 0:04:02.330 --> 0:04:04.649 And then finally, really, there's a third element which is 0:04:04.660 --> 0:04:08.979 societal and that is uh you know, as technology becomes 0:04:09.289 --> 0:04:16.170 uh essential to controlling narratives, to releasing information or disinformation 0:04:16.528 --> 0:04:21.688 uh towards uh in, in uh authoritarian regimes, towards uh 0:04:21.699 --> 0:04:26.269 suppression of populations, censorship that, that sort of thing. Technology 0:04:26.278 --> 0:04:28.519 is central to all of that. And so all of 0:04:28.528 --> 0:04:30.919 these would be power multipliers. 0:04:31.269 --> 0:04:34.587 Is this a brand new thing that basically goes back 0:04:34.598 --> 0:04:37.229 to Donald Trump, becoming the president of the United States 0:04:37.238 --> 0:04:39.397 or it's been going on for long before that, 0:04:39.479 --> 0:04:41.959 as long as there as there have been nation states, 0:04:41.968 --> 0:04:43.949 there has been techno nationalism. 0:04:44.420 --> 0:04:46.700 Ah So, for example, in the book I talk about 0:04:46.709 --> 0:04:50.119 the founding of the United States. Uh Alexander Hamilton, first 0:04:50.130 --> 0:04:52.738 Secretary of the Treasury, really one of his top priorities, 0:04:52.750 --> 0:04:56.329 if not, the top priority was to get access to 0:04:56.339 --> 0:04:58.969 British technology when it, when it came to the, you know, 0:04:58.980 --> 0:05:02.469 textile milling machines and, and, and so on. So, um 0:05:02.480 --> 0:05:04.618 and there were adversaries at that time, so you basically 0:05:04.630 --> 0:05:06.279 had to steal it 0:05:06.738 --> 0:05:09.229 and that's precisely what happened. I mean, that was really 0:05:09.238 --> 0:05:13.558 item number one on the agenda was, you know, steal, acquire, 0:05:13.570 --> 0:05:17.549 figure out how to get access to technology. So, um 0:05:17.589 --> 0:05:20.160 that sort of if you want to, let's just stick 0:05:20.170 --> 0:05:23.868 with the term techno nationalist uh approach to, to real 0:05:23.880 --> 0:05:28.299 politik and, and, and international relations, ah has been around 0:05:28.309 --> 0:05:29.239 for a very long time. 0:05:30.170 --> 0:05:32.808 It's fascinating and I think going back to the Cold 0:05:32.820 --> 0:05:36.589 War era, some would argue that some of the decoupling 0:05:36.600 --> 0:05:39.660 that happened between the US and Russia put Russia under 0:05:39.670 --> 0:05:41.339 a lot of economic strike because they had to sort 0:05:41.350 --> 0:05:44.230 of create homegrown tech stack, which was never really good. 0:05:44.238 --> 0:05:47.519 Enough incentives were not aligned. And that was one of 0:05:47.529 --> 0:05:50.570 the key elements that drove the victory if you will, 0:05:50.579 --> 0:05:52.630 the Cold War in favor of the West over the 0:05:53.470 --> 0:05:54.410 Soviet bloc. 0:05:54.420 --> 0:05:56.678 Yeah, I mean, that's a, that's a widely held view. 0:05:56.690 --> 0:06:00.130 Um I, I certainly, I, I certainly would, would say 0:06:00.140 --> 0:06:04.869 that um the amount of, of resources that, that, that 0:06:04.880 --> 0:06:08.349 needs to go into uh you know, pushing the, the 0:06:08.359 --> 0:06:12.250 envelope if you will from a technological standpoint and the, 0:06:12.260 --> 0:06:16.510 the idea that um the, for example, the, the Star 0:06:16.519 --> 0:06:20.570 Wars system that the Reagan administration uh was pushing whether 0:06:20.579 --> 0:06:22.470 or not it was e even feasible. 0:06:22.709 --> 0:06:25.469 Uh you know, the, the theory is, is, is that 0:06:25.480 --> 0:06:28.279 it bankrupted the, the Soviets because they thought it was, 0:06:28.290 --> 0:06:29.940 and they were putting a lot of, you know, time 0:06:29.950 --> 0:06:32.200 and effort and money into it. And, and of course, 0:06:32.299 --> 0:06:35.200 you know, they, they it, it helped in the collapse. So, 0:06:35.570 --> 0:06:36.159 um 0:06:37.140 --> 0:06:40.399 but from a techno nationalist standpoint, uh if you look 0:06:40.410 --> 0:06:43.690 at really, if you go back 100 years, uh and 0:06:43.700 --> 0:06:46.040 let's go back to the first World War, right? I mean, 0:06:46.440 --> 0:06:49.369 there were chemistry wars, right? To figure out how to, 0:06:49.380 --> 0:06:54.059 how to produce nitrates, to produce uh explosives, for example, right? 0:06:54.070 --> 0:06:56.260 And that, that was really the war of the scientists, 0:06:56.269 --> 0:06:58.579 right to come up with those innovations. And if you 0:06:58.589 --> 0:07:01.799 trace this theme of techno nationalism really back the last 0:07:01.809 --> 0:07:03.970 100 years plus, um 0:07:04.320 --> 0:07:07.339 there really is this very important correlation between the industrial 0:07:07.350 --> 0:07:08.140 revolutions 0:07:08.869 --> 0:07:12.609 and uh and what what I call the technology feedback loop, 0:07:12.619 --> 0:07:18.809 which is essentially this virtuous cycle that exists between um 0:07:18.820 --> 0:07:23.649 you know, governments, national governments, the defense establishment, academia, 0:07:24.390 --> 0:07:28.290 private business and or markets. Uh and as they all 0:07:28.299 --> 0:07:31.920 work together, uh you have this phenomenon where you have 0:07:31.989 --> 0:07:37.809 innovation taking place, uh it's, it's generating profit, it's generating 0:07:37.820 --> 0:07:41.450 more innovation, which it becomes a network effect sort of thing. 0:07:41.459 --> 0:07:43.769 So if you, if, if you look at this, this 0:07:43.779 --> 0:07:46.809 view of the world that some have described as, um 0:07:47.149 --> 0:07:48.768 the west versus the rest, 0:07:49.140 --> 0:07:53.000 uh you know, going back really 3, 400 years. Uh 0:07:53.010 --> 0:07:54.929 I mean, we could trace this all the way back 0:07:55.070 --> 0:07:59.239 to the Dutch East India company, right. And that, that 0:07:59.250 --> 0:08:02.850 sort of symbiotic relationship that emerged between the state and 0:08:02.859 --> 0:08:05.589 a for profit organization and all those elements in the 0:08:05.600 --> 0:08:08.200 feedback loop, right? But if you, if you project forward 0:08:08.570 --> 0:08:09.119 um 0:08:09.730 --> 0:08:13.649 that has combined with the, now we're in the fourth 0:08:13.660 --> 0:08:15.899 industrial revolution. But when you, when you, when you look 0:08:15.910 --> 0:08:21.600 at the fortuitous results of the industrial revolutions, the technology 0:08:21.609 --> 0:08:22.540 feedback loop 0:08:22.829 --> 0:08:27.929 uh on a nation state level that has essentially laid the, 0:08:27.940 --> 0:08:31.230 laid the groundwork for the international system as we see 0:08:31.239 --> 0:08:31.769 it today, 0:08:31.779 --> 0:08:35.179 right? Uh Alex, I want to get one thing clear, 0:08:35.190 --> 0:08:38.049 which is when you are referring to techno nationalism and 0:08:38.059 --> 0:08:41.020 especially when I think about the totality of the measures 0:08:41.299 --> 0:08:43.789 that particularly the US has taken against China in the 0:08:43.799 --> 0:08:46.030 last decade or so. A lot of it is 0:08:46.630 --> 0:08:49.840 rationalize under the guise of national security. We don't want 0:08:49.849 --> 0:08:52.210 our data to fall into the wrong hands. We don't 0:08:52.219 --> 0:08:55.488 want our technology to be weaponized in an armed conflict 0:08:55.500 --> 0:08:57.849 or something like that by our adversaries. But it seems 0:08:57.859 --> 0:09:01.609 to me that you, when you take this big historical sweep, 0:09:01.900 --> 0:09:05.049 you're also putting it in the context of economic security. 0:09:05.059 --> 0:09:07.559 I don't want you to rise to my level of 0:09:07.570 --> 0:09:10.369 economic prosperity and I would sort of prevent you from 0:09:10.380 --> 0:09:11.780 rising to some extent. Yeah, 0:09:11.789 --> 0:09:11.880 I, I 0:09:11.890 --> 0:09:16.239 think that's, that's somewhat of a zero sum view. Right? And, 0:09:16.250 --> 0:09:19.579 and I actually don't think that, that techno nationalism puts 0:09:19.590 --> 0:09:21.979 us in a world of zero sum. Right? I think 0:09:21.989 --> 0:09:24.359 the world has become way too complex right now, too 0:09:24.369 --> 0:09:28.359 many overlapping interests. And, and we're actually in a paradox. 0:09:28.849 --> 0:09:30.359 So the paradox is this, 0:09:30.989 --> 0:09:32.729 if you look at the, if you look at the 0:09:32.739 --> 0:09:36.968 grand sort of the mega trends that are defining the 0:09:36.979 --> 0:09:40.978 international system today, right? Um you know, you look at 0:09:41.590 --> 0:09:46.229 uh the fragmentation of a global supply chains because of 0:09:46.239 --> 0:09:53.750 geopolitical pressures, right? This move towards regionalization, even localization. Um 0:09:53.900 --> 0:09:58.609 the the the the idea that uh the world is bifurcating, 0:09:58.619 --> 0:10:02.429 right um around these, these two nodes, right? That basically 0:10:02.440 --> 0:10:07.329 the GSG G7 US plus plus China, I mean, if 0:10:07.340 --> 0:10:09.608 if you look at that, um 0:10:10.349 --> 0:10:15.340 we're not de globalizing, this is not a de globalization process, 0:10:15.349 --> 0:10:19.718 this is a reorganization process. So the global economy is, 0:10:19.729 --> 0:10:24.039 is reorganizing itself and it's, it's, it's a correction if 0:10:24.049 --> 0:10:28.409 you will. Um III I actually refer to it um 0:10:28.419 --> 0:10:33.848 as a geopolitical version of creative destruction. All right. So 0:10:34.179 --> 0:10:37.380 there, there is a, there there are many new economic 0:10:37.390 --> 0:10:40.880 opportunities that are rising as, you know, as a banker. 0:10:41.200 --> 0:10:43.380 Uh and the work that, that the bank is doing, 0:10:43.640 --> 0:10:46.109 you know, that, that, that when you have these shifts 0:10:46.119 --> 0:10:49.309 in supply chains in, in global value chains, um 0:10:50.020 --> 0:10:55.320 there's rebuilding, there's restructuring, there's, there's the services industry, you know, there, there's, it's, 0:10:55.330 --> 0:10:57.439 it's a real knock on effect. And I should point 0:10:57.450 --> 0:11:00.900 out the paradox that I that I refer to is 0:11:01.349 --> 0:11:04.950 that on one hand, we have all of these things 0:11:04.960 --> 0:11:08.830 that I've just described happening with strategic technologies. So, so 0:11:08.840 --> 0:11:13.479 the value chains around there's really 12 core technologies and 0:11:13.489 --> 0:11:14.919 we can get back into that in a little bit 0:11:14.929 --> 0:11:18.840 of course, semiconductors, quantum biotech, you know that sort of thing. 0:11:19.159 --> 0:11:19.559 Um 0:11:19.849 --> 0:11:22.728 But even as that's happening, even even as we're seeing 0:11:22.739 --> 0:11:28.010 this bifurcation, we're seeing increases in trade volumes including between 0:11:28.020 --> 0:11:31.390 the US and China, right? So um 0:11:32.119 --> 0:11:34.189 the way I look at that, the way I dissect 0:11:34.200 --> 0:11:36.719 that is I look at global value chains as a, 0:11:36.729 --> 0:11:39.809 as a sort of a striation like three levels. OK. 0:11:40.260 --> 0:11:43.569 So on the top level, we have all the strategic goods, right? 0:11:43.849 --> 0:11:47.309 And that's where that's where the decoupling and the deris 0:11:47.320 --> 0:11:50.900 is happening, the restructuring and so forth in the middle, 0:11:51.270 --> 0:11:55.479 the second, the second layer down, we have this nebulous 0:11:55.489 --> 0:11:56.739 gray area. 0:11:57.299 --> 0:12:00.510 And uh within that gray area, we have uh dual 0:12:00.520 --> 0:12:05.080 use goods. So these are commercial goods that are used 0:12:05.090 --> 0:12:10.228 for a wide array of industries and sectors, you know, 0:12:10.239 --> 0:12:13.119 everything from a SIM card in your phone, literally to 0:12:13.130 --> 0:12:15.890 the brake pads in the car you're driving. But they 0:12:15.900 --> 0:12:20.299 could be considered dual use, meaning they're commercial, but they 0:12:20.309 --> 0:12:22.909 could be used for military purposes. And therefore, if they're 0:12:22.919 --> 0:12:23.679 being sent 0:12:23.919 --> 0:12:29.190 to um you know, an identified entity, a blacklisted entity somewhere, 0:12:29.200 --> 0:12:31.169 it's going to require an export license or it's just 0:12:31.179 --> 0:12:34.770 gonna be blocked throughout, that's the real gray area. And 0:12:34.780 --> 0:12:38.209 that's really where the scenario mapping and the the the 0:12:38.219 --> 0:12:41.650 really serious analysis has to take place if you're a 0:12:41.659 --> 0:12:42.179 company 0:12:42.650 --> 0:12:44.489 and then the and then the third level is just 0:12:44.500 --> 0:12:48.368 the the rest of the stuff. Uh that is essentially innocuous, right? 0:12:48.380 --> 0:12:51.689 I mean, do we care where your shoes come from? 0:12:51.700 --> 0:12:53.890 You know, your bottle of shampoo, you know, that type 0:12:53.900 --> 0:12:54.280 of thing. 0:12:54.590 --> 0:12:57.989 But even that evolves Alex, I'll give you an example 0:12:58.419 --> 0:13:02.579 five years ago. If you bought an Osim massage chair, 0:13:02.890 --> 0:13:06.439 it'd give you a massage. Today's Osim chairs have Bluetooth 0:13:06.450 --> 0:13:09.429 capability and you can connect to your phone and you 0:13:09.440 --> 0:13:11.169 can run the chair through your phone. So all of 0:13:11.179 --> 0:13:12.340 a sudden now it has 0:13:13.309 --> 0:13:19.039 mini Bluetooth application and data transmission capabilities. So then it 0:13:19.049 --> 0:13:22.239 starts going on from the third, completely innocuous. A chair 0:13:22.250 --> 0:13:25.000 that does no harm. That's right to somewhere in the middle. 0:13:25.539 --> 0:13:29.130 I guess that's where lawyers and regulators and consultants. Everybody 0:13:29.140 --> 0:13:32.150 come in and they fight it out to the company 0:13:32.159 --> 0:13:33.500 gets a buy or not. 0:13:33.590 --> 0:13:34.080 That's right. 0:13:34.369 --> 0:13:36.569 And so if you take, uh if you take a 0:13:36.580 --> 0:13:41.140 dual use technology that's in a, a fairly ubiquitous kind 0:13:41.150 --> 0:13:44.450 of product that everybody buys. And then there's this uh 0:13:44.460 --> 0:13:48.500 a sudden geopolitical event, uh an accidental flare up in 0:13:48.510 --> 0:13:50.950 the South China Sea or some kind of an event. 0:13:51.489 --> 0:13:54.150 It's quite possible that literally overnight, 0:13:54.789 --> 0:13:57.549 ah what was a commercial, what was considered purely a 0:13:57.559 --> 0:14:01.229 commercial good going to a particular importer or buyer in 0:14:01.239 --> 0:14:04.809 say China um is now off limits, 0:14:05.609 --> 0:14:07.179 right? And so, I mean, these are the types of 0:14:07.190 --> 0:14:09.960 things that companies need to be uh mapping out, right? 0:14:09.969 --> 0:14:11.679 They need to be looking at what parts of their 0:14:11.690 --> 0:14:15.210 supply chain are in this gray dual use area and 0:14:15.219 --> 0:14:18.479 given different scenarios in the world, what would happen if 0:14:18.489 --> 0:14:23.119 you know, scenario one, scenario two, perfect example of that 0:14:23.270 --> 0:14:25.440 is um electric vehicles 0:14:25.729 --> 0:14:28.109 and all of the, you know, w what is an 0:14:28.119 --> 0:14:31.760 electric vehicle, right? It's, it's, it's a computer on wheels, right? 0:14:31.770 --> 0:14:35.299 And it's, it's, it's sending and receiving information not only 0:14:35.309 --> 0:14:38.969 about where you're going but everything that's around you. Uh 0:14:38.979 --> 0:14:43.960 what's coming in on communication networks and other smart devices. 0:14:44.169 --> 0:14:46.530 And as you saw, I think it was just yesterday 0:14:46.909 --> 0:14:50.299 that Washington has announced that both the software and the 0:14:50.309 --> 0:14:54.070 hardware that goes into electric vehicles in the states cannot 0:14:54.080 --> 0:14:55.270 be of Chinese origin, 0:14:55.619 --> 0:14:58.969 right? So no export and no import around those things. 0:14:59.090 --> 0:14:59.609 Yeah, so 0:14:59.619 --> 0:15:03.159 that's an example of how in anything that's considered strategic, 0:15:03.330 --> 0:15:05.750 we're going, we're going to continue to see a very 0:15:05.760 --> 0:15:09.989 clear bifurcation of supply chains, value chains. 0:15:11.309 --> 0:15:14.690 Uh Maybe this question is too early to ask. But 0:15:14.700 --> 0:15:16.869 since you were talking about it, it sort of follows 0:15:16.880 --> 0:15:20.809 to me almost naturally do these restrictions work. 0:15:21.960 --> 0:15:25.140 You know, a semiconductor is super tiny, a lot of 0:15:25.150 --> 0:15:28.770 stuff just are uploaded and transmitted through the cloud over 0:15:28.780 --> 0:15:31.539 the air. It's not a question of a Department of 0:15:31.549 --> 0:15:34.719 Commerce inspectors sitting in Vietnam or somewhere else and making 0:15:34.729 --> 0:15:36.940 sure that everything is up and up. 0:15:37.320 --> 0:15:40.349 Um What has, what is the report card so far? 0:15:40.960 --> 0:15:45.349 Well, look export controls, le le let's start historically, I'll, I'll, 0:15:45.359 --> 0:15:47.270 I'll give you the answer historically and then, and then 0:15:47.280 --> 0:15:50.030 maybe we can apply it to say semiconductor today, right? 0:15:50.179 --> 0:15:52.070 What's what's going on? So historically, 0:15:52.859 --> 0:15:56.940 the record shows that um an export control will slow 0:15:56.950 --> 0:16:00.400 down the transmission or the, you know, the, the the 0:16:00.409 --> 0:16:03.479 dissemination of a certain kind of technology, but it's not 0:16:03.489 --> 0:16:06.650 going to stop it eventually. Um You know, it's, it's 0:16:06.659 --> 0:16:09.010 going to make its way into sort of the, the, 0:16:09.020 --> 0:16:11.159 the broader environment. Now, 0:16:11.950 --> 0:16:14.280 we also have to be careful about what kinds of 0:16:14.289 --> 0:16:17.469 technology we're talking about. So if we're talking about satellite technology, 0:16:17.479 --> 0:16:19.859 which in the, in the eighties, you know, the eighties 0:16:19.869 --> 0:16:22.200 and nineties there were controls, but eventually everybody figured out 0:16:22.210 --> 0:16:26.150 how to make satellites. Um That's one thing. But if 0:16:26.159 --> 0:16:29.770 we're talking about making a two nanometer chip 0:16:30.159 --> 0:16:33.109 where the barriers to entry are so incredibly 0:16:33.119 --> 0:16:33.380 high, 0:16:33.390 --> 0:16:35.210 basically one company makes it or 0:16:35.219 --> 0:16:37.510 or you know, it's it's right. So in the case 0:16:37.520 --> 0:16:39.900 of one company, you're probably talking about a SML which 0:16:39.909 --> 0:16:44.919 which makes the lithography lithography equipment. 0:16:45.820 --> 0:16:50.179 But even beyond that, within that, within that value chain, 0:16:50.190 --> 0:16:54.119 within that fabrication process, the the hyper specialization and the 0:16:54.130 --> 0:16:58.599 companies that specialize in that. So it's it's essentially with, 0:16:58.609 --> 0:17:01.080 in that case, we're we're looking at the emergence of 0:17:01.090 --> 0:17:02.979 a cartel, right. We're looking at the emergence of a 0:17:02.989 --> 0:17:08.000 chip cartel along geopolitical lines, right? So to answer the question, 0:17:08.010 --> 0:17:10.560 do do export controls work. 0:17:10.859 --> 0:17:14.699 Uh it's two fold, it depends how sophisticated the technology 0:17:14.709 --> 0:17:17.569 is and, and how, how high the barriers to entry are. 0:17:18.010 --> 0:17:22.119 But it also um it it also comes down to 0:17:22.540 --> 0:17:26.969 um how can these export controls be circumvented? What are 0:17:26.979 --> 0:17:31.079 the workarounds? What are the back doors and to that effect, 0:17:31.089 --> 0:17:33.079 there are quite a few, right? So let's let's talk 0:17:33.089 --> 0:17:35.879 about NVIDIA, nvidia's A I chips, right? 0:17:36.280 --> 0:17:39.339 So ex you know, export controls on them. Are they 0:17:39.349 --> 0:17:42.530 continuing to make their way into China, for example? And 0:17:42.540 --> 0:17:46.459 the answer is yes um uh you know, are ex 0:17:46.469 --> 0:17:49.050 and how, how is that happening? There's there's a few 0:17:49.060 --> 0:17:52.140 ways that's happening. The first is the export control process 0:17:52.150 --> 0:17:53.050 itself 0:17:53.369 --> 0:17:56.339 and the way it works is before an export control 0:17:56.349 --> 0:17:59.849 is actually enforced and it becomes mandatory to get a license. 0:18:00.099 --> 0:18:02.920 There's this long period where they make an announcement where 0:18:02.930 --> 0:18:05.109 they say yes, we're uh you know, it's a public, 0:18:05.119 --> 0:18:08.219 it's a public announcement process. We're, we're going to uh 0:18:08.229 --> 0:18:11.389 be implementing export controls and it's going to take effect 0:18:11.400 --> 0:18:13.979 in such and such time. So what does that do? 0:18:14.329 --> 0:18:18.750 Uh that incites a AAA binge buying sessions, right. So 0:18:19.010 --> 0:18:20.910 to load all the purchases as much as possible, I mean, 0:18:20.920 --> 0:18:23.939 just soak up everything that's out on the market, stockpile 0:18:23.949 --> 0:18:25.849 it and you've got chips for the next two years. 0:18:25.859 --> 0:18:28.209 That's what Huawei did when they were placed on the 0:18:28.219 --> 0:18:33.099 entity list, the the the Chinese telecommunications equipment manufacturing company. 0:18:33.439 --> 0:18:34.030 Um 0:18:35.260 --> 0:18:37.790 So there's, there's that, so there's the, the issue that 0:18:37.800 --> 0:18:40.479 everybody goes out in stockpiles. And we're seeing that now 0:18:40.699 --> 0:18:47.119 with uh DUV uh deep ultraviolet lithography machines uh being stockpiled. 0:18:47.300 --> 0:18:51.079 Uh you know, in China, right? The huge, huge, you know, 0:18:51.089 --> 0:18:54.109 spikes in, in, in the numbers going up because 0:18:54.270 --> 0:18:56.319 the EU vs are not available at all. The 0:18:56.329 --> 0:18:59.520 EU vs which is the extreme ultraviolet. Uh But the 0:18:59.530 --> 0:19:04.319 Duvs um um are are being basically purchased because 0:19:04.750 --> 0:19:07.399 um you know, just to divert a little bit. Um So, 0:19:07.410 --> 0:19:11.169 so Huawei worked with SMIC uh and they came up 0:19:11.180 --> 0:19:15.619 with a seven nanometer chip using uh imported DUV equipment. Basically, 0:19:15.630 --> 0:19:18.060 they used that for the, the, the mate 60 phone 0:19:18.380 --> 0:19:18.680 which was 0:19:18.689 --> 0:19:20.640 not considered likely, but they pull it off, 0:19:20.650 --> 0:19:22.448 they, they pulled it off. But again, if you look, 0:19:22.459 --> 0:19:25.369 I mean, uh I'm kind of detracting but 0:19:25.589 --> 0:19:27.369 uh I'll come back to the, you know, do the, 0:19:27.380 --> 0:19:29.719 do export controls work. Um But yeah, so in the 0:19:29.729 --> 0:19:32.079 case of Huawei, what they did with the, with, with that, 0:19:32.089 --> 0:19:33.879 with that process is it's a, it's a, it's a 0:19:33.890 --> 0:19:37.399 much more labor intensive process. You know, when you're in 0:19:37.410 --> 0:19:40.739 the lithography process, you have to pass over again and 0:19:40.750 --> 0:19:41.439 again and again, 0:19:42.030 --> 0:19:43.150 yield, you get a lot of commercial, 0:19:43.849 --> 0:19:46.920 it costs a lot more money. So unless somebody's basically, 0:19:46.979 --> 0:19:50.119 you know, reimbursing you for all that, that leakage, that 0:19:50.130 --> 0:19:53.880 cost leakage, it's not competitive, basically. OK. So, so coming back, 0:19:53.890 --> 0:19:54.930 so we got binge buying 0:19:55.550 --> 0:19:58.599 uh which is happening. Um the other is, of course, 0:19:58.609 --> 0:20:01.119 is just black market and gray market, you know, achieving 0:20:01.130 --> 0:20:02.849 chips uh you know, on the black market and the 0:20:02.859 --> 0:20:05.069 other uh and this is why this is a game 0:20:05.079 --> 0:20:07.640 of whack a mole, right? When we talk about um 0:20:07.689 --> 0:20:11.890 the US administration trying to, trying to enforce um 0:20:12.560 --> 0:20:14.439 uh but you know, the the other is when, when 0:20:14.449 --> 0:20:17.219 we're talking about uh cloud computing, for example, and and 0:20:17.229 --> 0:20:21.359 accessing the power of those chips to to do whatever 0:20:21.369 --> 0:20:24.780 computer processing you want, you can access that in the 0:20:24.790 --> 0:20:26.530 cloud from a third 0:20:26.540 --> 0:20:26.938 party. 0:20:26.949 --> 0:20:28.739 So the data center can be in the Middle East, 0:20:29.060 --> 0:20:32.129 the company could be in China, right? I mean, right, 0:20:32.140 --> 0:20:35.139 they're accessing all the cutting edge chips being used over there. 0:20:35.430 --> 0:20:39.139 So, so this is, this is a a game that's 0:20:39.150 --> 0:20:40.900 in progress. 0:20:41.339 --> 0:20:43.739 And uh you know, we're going to continue to see, 0:20:43.750 --> 0:20:46.599 you know, efforts to sort of uh clamp down on 0:20:46.609 --> 0:20:50.030 these types of, of things. And I think maybe maybe 0:20:50.040 --> 0:20:51.819 another time we can come back and talk about what 0:20:51.829 --> 0:20:55.198 I call the surveillance supply chain. Basically, the the way 0:20:55.209 --> 0:21:00.880 new technologies are going to be used to essentially achieve much, 0:21:00.890 --> 0:21:05.839 much greater transparency and traceability in supply chains, right, to 0:21:05.849 --> 0:21:07.599 trace the actual movement. 0:21:07.810 --> 0:21:09.510 Uh And a lot of this is gonna be focused 0:21:09.520 --> 0:21:12.510 on A I right on, on A I chips and 0:21:12.520 --> 0:21:16.180 it's gonna be focused on cloud infrastructure. You mentioned uh 0:21:16.189 --> 0:21:18.609 data centers. This is where all this is going to 0:21:18.619 --> 0:21:19.790 be playing out. So it's 0:21:19.800 --> 0:21:22.099 not just a question of I buy something from you 0:21:22.109 --> 0:21:23.609 and then I do whatever I want with it. 0:21:24.020 --> 0:21:26.149 In fact, even after buying it from you, I remain 0:21:26.160 --> 0:21:27.969 liable to how I use it 0:21:27.979 --> 0:21:31.010 or, or even the the original seller will be able 0:21:31.020 --> 0:21:35.020 to trace where it actually is including embedded in a 0:21:35.030 --> 0:21:38.510 finished product basically. So I think we'll see more of 0:21:38.520 --> 0:21:40.510 that and that is that's going to be a growth industry, 0:21:40.520 --> 0:21:42.489